Chip sales edge up in October

Chips sales rose slightly in October, but analysts say not to don party hats just yet.

The Semiconductor Industry Association (SIA) said Monday that worldwide chip sales in October came in at $10.43 billion, a 2.5 percent month-over-month increase from September's $10.18 billion figure.

The slight rise in sequential sales--the first since November 2000, according to the SIA--is a positive note for the otherwise depressed chip industry.

However, October's sales were still well below those in October 2000, a point that analysts latched onto Monday. Although the chip market is improving, they said, it's nowhere near what could be called a recovery---at least not yet.

October's sales were down 44 percent from October 2000, according to the SIA, which actually uses a three-month average of revenues to help account for companies' different quarterly financial reporting schedules.

Compared in a more direct year-to-year manner by analyst firm Lehman Brothers, October 2001's sales declined by 43 percent when measured against October 2000--a figure that is actually worse than September 2001's 41 percent drop in sales vs. September 2000.

"These figures are just another indication that though business is improving, we are certainly not seeing a V-shaped bottom," Lehman Brothers analyst Dan Niles wrote in a report Monday. "October 2001's revenue performance of down 43 percent year over year continues to reinforce our thesis that the semiconductor cycle is still bouncing along the bottom of the trough."

Still, October's year-over-year decline is an improvement from August 2001's sales drop of 49 percent vs. August 2000, as calculated by Lehman Brothers. Historically, August is an important month whose sales show either great strength or great weakness, depending on the overall health of the market.

Niles also saw other reasons to be at least a little optimistic.

"We believe the major catalyst for the...decline was the Sept. 11 attacks, which halted many businesses for about two weeks and created a spillover effect into the October month. November should show a major improvement if the reason for the shortfall was the spillover effect of Sept. 11," Niles wrote.

Indeed, the SIA asserts that the situation will continue to improve. October sales increased worldwide, with the exception of Japan, as demand for products such as personal computers and cell phones increased.

Similarly, chip manufacturers and memory makers have seen inventories shrink and prices rise in the past few weeks. Yet even though some analysts have said the uptick could indicate a return to stability in the market, others said that the sales trends could be the result of other factors, including overly aggressive price cuts and earlier, overly pessimistic forecasts.

"The worldwide market for semiconductors in 2001 is expected to decline 31 percent due to excessive inventories and price pressure on a wide range of products," George Scalise, SIA's president, said in a statement. "However, recent data indicates inventory is now largely in balance and prices are rebounding in some product categories."

The SIA's most recent forecast, released last month, projects that the chip industry will see a fourth-quarter turnaround, resulting in a growth of 6.3 percent in 2002 and 21 percent in 2003.

SIA, located in San Jose, Calif., represents a number of U.S.-based chipmakers and tracks data such as sales trends.